by Natalie Pace.
I'm going to share something very personal with you. I lost a friend to suicide. This was a number of years ago -- before the Great Recession. She was depressed pretty much her entire life, and a bad reaction to her "anti-depressant" drugs surely contributed to the suicide. However, the root of her "dis-ease" was that she made a number of horrible investments. She had pulled money out of a home that she owned free and clear, and lost most of that money by investing on the bad advice of an "accountant friend" who was getting money on the side for putting her in the deal. She couldn't forgive herself for making a mistake, and her hatred of those friends and professionals who advised her was eating her alive. Her desperate circumstance and tragic end fueled my decision to devote my life to educating others on money, and to continue publishing my ezine through thick and thin for over a decade now.
Today, people are in trouble financially, and far too many are losing their homes -- largely as a result of bad investments. When you borrow money to make a bad investment, then your troubles are compounded, and the debts you owe compound to the point where it's hard to see an end of the mess.
Once you get into financial trouble, the banks and credit card companies keep you backed into a corner, so that paying them is at the top of your mind, even before taking care of your own financial future. While you are fretting about being honorable, getting your life back on track, making payments on time and "keeping your FICO score up," taking the matter quite personally, the debt collector on the other end of the line is trained to take emotions out of it and stick to the business of getting paid. That's their job. It's not their job to inform you of all of your rights and responsibilities (which they probably don't even know), or to offer solutions to put you on the path to financial freedom and get your financial house cleaned up once and for all. It's their job to try and get as much money out of you as they can, for as long as they can and to make sure that they are first in line whenever any income arrives. And because time is limited and you assume that they want to work with you honorably, you might be relying on your adversary for advice. And yes, the debt collector, once it gets to that point, is your adversary.
Meanwhile, you lose sleep. You get upset every time they call and hound you for money that you simply don't have. Your health might suffer. You might be short with those you love, take on extra debt or make a big gamble to try and win a jackpot. It is sad to acknowledge, but a lot of folks get suicidal or homicidal in this situation. During the Great Recession, there were far too many people who were underwater on their home mortgage, who, after failing to get a loan modification, thought the only way out was to take their own life. None of these things remedy the situation; all of them make matters worse. And the legal options, which could save your home and give you a second shot, are never even considered. The lifeboat and lifelines that are available to you sit idle.
Yes. Even in the worst-case scenario, there are many options. There are many possibilities on the menu of debt reduction that are simply not well publicized. And they have ugly sounding names that keep a lot of people from ever considering them.
When you are underwater on a mortgage or behind on your credit card payments, you can expect aggressive calls from some pretty relentless debt collectors, who walk as close to the line of what is legal as they possibly can. They will use every psychological strategy known to man -- including making you feel like their friend, or conversely, insulting you or threatening to put a lien on your income and assets -- to make sure that paying them back is paramount in your mind, even above making sure you've got your own assets covered (which is always your first financial job). They'll threaten you with liens, late fees, high interest rates, low FICO scores and make you feel like missed payments are worse than felony manslaughter.
Many people are frightened into thinking that a FICO credit score is the most important number in the world -- even above the actual dollar amount that you have in your retirement accounts! How many people do you know who believe that they'll start saving for their own retirement, once they pay off their debt? How many do you know who are draining their retirement accounts to pay the debt collector in a hopeless attempt to get ahead of the game? This is almost always a very bad idea. (Liens cannot be placed upon retirement plans in the United States.) And this mindset will keep you in debt forever. Here's how...
While you are so worried about debt and your credit score and paying the bill collector before you provide for your own future, your credit score could be plunging into the sub-strata, even if you make your payments on time! Payment history is only 1/3 of your credit score! If you are really underwater, and your debts far exceed your net worth, assets and income, then declaring "bankruptcy" could actually improve your credit worthiness, by significantly reducing your debt to assets ratio, which makes up another 1/3 of the score.
While you are "paying off debt," the amount you owe can be increasing due to the effect of compounding, penalties and increased interest rates. If you are draining your assets to pay down debt, then your assets to debt are shrinking and your credit score is as well. Your ability to get the best terms and interest rates for potentially consolidating debt is highly dependent upon your assets, which will always be underwater if you aren't more concerned about increasing them and contributing to your tax-protected and financial-predator proof retirement accounts, even as you search for your many options to reduce debt and employ a budget that ensures you are living within your means.
Some bankruptcy options even allow you to keep your home and car. Restructuring your debt (through bankruptcy) is going to be a lot shorter route to recovery than any other, for many people. Donald Trump is a living example that a person can be worth negative three billion in one decade and positive seven billion the next. Be sure to read the Chapter 7 and 13 information on the FTC.gov website, in the article, "Knee Deep in Debt," for additional information.
Once you realize that you are the author of your life and you are the only one responsible for taking care of you and your family, you can stop letting the daily threats of the debt collector define your financial strategy. There are many articles in this ezine, and particularly in the article, "How to Get Safe in a Debt World," that will lead you out of today's crisis and into tomorrow's much more prosperous and fulfilling life and lifestyle.
About Natalie Pace:
Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in North America. This article is intended to educate and inform individual investors, and, thus, to give investors a competitive edge in their personal decision-making. The publicly traded companies mentioned in this article are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a long, safe strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.